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Now or later?

By Nikos Xydakis

Greece’s return to the international bond market prompted varying reactions from political and financial analysts at home and abroad. However, most seem to agree that the ability to raise 3 billion euros from a five-year bond sold at a yield of 4.95 percent will provide a confidence boost, although the country’s credit rating remains deep in junk territory and the amount raised is relatively small. This improvement in the economic mood could help big Greek companies to seek capital abroad if local banks fail to extend loans to them.

Economically speaking, the bond will not yield any immediate gains. It will add an extra 75 million euros in annual interest to the existing debt, which already is huge and non-serviceable. In 2019, when the bond matures, Greece will have to pay another 3 billion euros on top of the 8 billion it was already scheduled to pay. As a result, the new burden will further complicate the mammoth effort to service the debt – even more so given that, as it seems, the whole restructuring effort will concentrate on rolling over the debt. So it would have made more sense to postpone the return to the markets until after the restructuring, which is expected to take place after the summer.

To sum up, the bond buys political time. It does so at a high price. It could serve some purpose if the money was used to buy back old debt on the secondary market. More likely, though, it will be used to pay off bonds worth 9.5 billion euros that mature in May, given that the Eurogroup divided the 8.3-billion installment into three smaller tranches tied to Greece meeting its commitments.

At the same time, everyone knows that the governing coalition’s majority hangs by a thin thread. The government cannot afford to vote through any more austerity measures. However, we know that the interest rates over the five year period will on one hand be subtracted from the already-hit welfare state, schools, hospitals and the benefits for the most vulnerable; on the other hand, they will also be subtracted from the country’s anemic public investment program which should naturally be the driving force of the economy.